Can a foreigner own a business in Malaysia?
The answer is a big yes. According to the Company Act 2016, a foreigner is allowed to incorporate a certain type of business entities and solely own said entity so long as they have a legitimate residential address in Malaysia.
Why choose to incorporate a Private Limited Company (Sdn. Bhd.) instead of other business structure?
Sole Proprietorship and Partnership VS Private Limited Company (Sdn. Bhd.)
As many might know, most Malaysian prefer to incorporate a sole proprietorship or partnership compared to a private limited Company (Sdn. Bhd.) due to the cheap cost and easy registration as well as cheaper cost to maintain the business annually. However, such option is not opened for foreigner as only Malaysian citizen or Permanent Resident (PR) is allowed to operate such business structure.
Other drawbacks that these two business structures impose are:
- Owner/Partners are liable towards all the debts accumulated by the business
- Creditors have the power to sue owners/partners if they filed for bankruptcy in order to claim the debt owed
- It is not so easy to encourage third party investors or bankers to fund the business
The cost and annual compliance to maintain a sole proprietorship and partnership might be less compared to private limited Company (Sdn. Bhd.), however, the risk of the owner/partners facing bankruptcy is definitely a lot at stake.
Subsidiary VS Private Limited Company (Sdn. Bhd.)
A subsidiary and a private limited Company (Sdn. Bhd.) are quite similar with each other. However, setting up a subsidiary can be difficult and rigorous compared to incorporating a private limited Company (Sdn. Bhd.). More documents are needed such as:
- Company particulars of parent Company certified by the appointed Company Secretary
- Board of resolution from parent Company to approve the incorporation of a subsidiary Company
- Memorandum of appointment or power of attorney authorising the person residing in Malaysia to accept the notices on behalf of the parent Company
- Statutory declaration by the agent of the parent Company
And the price of to incorporate a subsidiary is depending on the authorised share capital unlike incorporating a private limited Company (Sdn. Bhd.). For example, the authorised share capital is MYR 400,000, the incorporation fee is only MYR 1,000. The higher the authorised share capital is, the higher the fees chargeable.
As for annual compliance, a subsidiary is deemed to be more complex compared to a private limited Company (Sdn. Bhd.). They not only need to file annual return, but it is also a compulsory for them to file audited financial statement of the subsidiary. Whereas a private limited Company (Sdn. Bhd.) have the option to choose to file an audited or unaudited financial statement as long as they meet the criterion.
Branch VS Private Limited Company (Sdn. Bhd.)
As for a branch office, it is considered an extension for a parent Company. Meaning to say, they are not allowed to:
- Use different name from parent Company
- Use different business activities from parent Company
- Use for long-term
Normally, a branch is used in order for the parent Company to test the market in a foreign land. The branch will be 100% owned by the parent Company. Similar to subsidiary, a branch office has a more complex annual compliance that they need to meet. They are required to file annual return, audited financial statement for branch as well as the audited financial statement of parent Company.
As for tax treatment, branches are not given the opportunity to enjoy local tax benefits. They are treated as a non-resident entity which will be charged at 24% flat rate.
Compared to private limited Company, an entrepreneur has the chance to explore other market and has the privilege to enjoy a simpler annual compliance.
Common misinterpretation by foreign businessmen about Incorporation in Malaysia
It is a norm for potential foreign investors to trust hearsay they read up from numerous websites pertaining incorporating a Company in Malaysia which leads to misinterpretation. It normally relates to the items below:
Incorporating a Company
The steps to incorporate a Company such as private limited Company (Sdn. Bhd.) are the same for both local and foreign alike.
- At least one director and shareholder that has legitimate local residential address
- Minimum paid-up capital is MYR 1
- The cost of registration with Companies Commission of Malaysia (SSM) is MYR 1,060
- Must appoint a licensed Company Secretary within 30 days after incorporation is done
- Can venture into almost all types of businesses available in Malaysia
The registration of a Company can be done online by the appointed licensed Company Secretary without the need of you to come down to Malaysia.
Opening a Corporate bank account
Once a Company is incorporated, they are allowed to open a bank account. Due to the restriction of travelling these days, most banks have opted to communicate online with most of their clients. This shows how committed the bankers are in easing the bank account opening procedure from their clients, regardless of where they are.
For local Malaysian, opening a corporate bank account can be slight easier compared to foreigner. This is because we have an identity card or known as “MyKad” which is normally used for any official business made by the citizen.
The banker is able to run a background check by keying in the unique 12 number associated with the “MyKad” to ensure the individual is not an exposed person as well as their credit score is clean.
A credit score of a Malaysian citizen can be checked in two systems which are:
- Central Credit Reporting System (CCRIS) by the Credit Bureau of Central Bank Malaysia
- Credit Tip-Off Services (CTOS) by CTOS Data Systems Sdn. Bhd.
A CCRIS report portrays information regarding outstanding payments, special attention accounts as well as a loan application status made by a Malaysian. Whereby a CTOS report provide information on legal matters such as bankruptcy status, legal actions, and case status. It also portrays a Malaysian involvement in businesses and corporations. If a Malaysian CCRIS and CTOS report is clean, a corporate bank account opening will be smooth and might only take around 1 to 2 weeks to open.
However, the same cannot be said to a foreigner. Bankers normally tap into their international database to ensure the foreign clients have a clean background. Aside from that, there are some nationalities where Malaysia bank policy does not allow to open a bank account. Some of them are:
- Israel
- Iran
- Iraq
- Serbia
The central bank of Malaysia (BNM) has issued a direction stating that “no person in Malaysia shall undertake or engage in any dealing or transaction with or involving a Specified Person.” The direction also stated that “no person in Malaysia shall undertake or engage with any person in any dealing or transaction using or involving Restricted Currency.”
The term “Specified Person” and “Restricted Currency” refers to the countries sanctioned as involved with political unrest or civil war or high-risk countries.
